Oz Blog News Commentary

Living in the 70s: why Australia’s dominant model of unemployment and inflation no longer works

September 21, 2023 - 12:56 -- Admin

I’m looking forward to the release of the government’s Employment White Paper with a mixture of hope and trepidation. The fact that the title was changed from the original “Full Employment” is not encouraging, nor is the general track record of this government. On the other hand, in setting the scene for the release, Treasurer Jim Chalmers has indicated that the government will commit itself to five main objectives

sustained and inclusive full employment; job security and strong, sustainable wage growth; reigniting productivity growth; filling skills needs and building the future workforce; and overcoming barriers to employment and broadening opportunity.

It’s hard to see how the first objective can be reconciled with the fact that the Reserve Bank remains committed to a NAIRU model in which the full employment goal is subordinated to an inflation target, and that its current policies are aimed at pushing unemployment even higher than the NAIRU level.

I’ve written a piece for The Conversation explaining why the NAIRU model isn’t supported by economic experience, except for a single inflationary episode in the 1970s.